Orient Bell Limited (ORIENTBELL.BO) Earnings Call Transcript & Summary

The next question is from the line of [ Ashvanth ] from Samatva.

Just wanted to -- I understand that the industry has been through quite a tough time in the last few years. And given that our sales have kind of stagnated for almost 4 years now, so what is the time frame that you guys see where we can probably get like a revenue of INR 1,000 crores?

Could you please repeat your question? Not very clear.

I'm saying, given that the industry has been through a tough time in the recent past, so what is the time frame in which you see our company hitting revenues of close to INR 1,000 crores?

So I think you're asking me to forecast the future. As a policy, we don't give out futuristic guidelines. I did talk about though that the green shoots that we are seeing in the market. I spoke about how early-stage construction products are doing very nicely. I spoke about how projects -- more projects are being launched and they will get into the finishing stage over the next few quarters. And also I talked about exports started to grow at an industry level. So I think some of the headwinds that the industry has been facing for the last 2, 3 years will definitely slow down. And this combined with our internal initiatives on demand generation, on product side and on digitization will definitely help us grow much, much faster than what we have been doing in the past.

Yes, the point taken, but just trying to understand. See, you may have like a vision -- or some vision or some targets which you have, right? I mean, what you plan to reach? Or maybe if it's not revenues, then at least the volume growth numbers. So I understand revenues might not be in your hands always, but what about the volumes what you're looking at in terms of the volume growth in the next 3, 4 years?

So we stay away as a policy from any future guidance. So I will not give any specifics. But I think overall, the industry seems to be coming out of a stage of -- a time period of slow growth and this thing. Another thing which I spoke about briefly is that we don't see any major capacity addition in 2026. There are hardly another 8, 10 plants which we know of, which will come into play through 2026. So capacity will remain similar or same as what it has been in the last 1 or 2 years and some green shoots on exports, green shoots on early-stage construction products. So I think the industry is now well set for better growth than in the past.

Got it. Got it. So in that case, in the next 2 years, where do you see yourself spending your cash flows? So is it on opening more boutiques will fetch you the best returns? Or is it the marketing? Or -- again, I'm sure it's all of these, but I'm thinking if you would prioritize, what are the top 2, 3 focus areas where you'll be spending money in the next 2 years?

So I think great -- so see, we will definitely be spending to add distribution, whether it is through OBTBs and all other distribution expansion activities. That is one area. Second area is marketing. Historically, we started our TV advertisement from about 2 years back and all. We are extremely late at it. And now from current financial -- this financial year, we are moving to a stage where we are investing and spending every month on TV. I think -- but not across India. We don't have -- for example, we don't have anything in Tamil Nadu. We don't have anything in Andhra Pradesh, Telangana and all. So we are going to spend much more aggressively on TV in FY '27 and of course, spend on adding up distribution and displays. We have -- I'll just mention another thing that might help you. Anuj ji had talked about capacity utilization. So we did go through over the last 4 years, a big capacity expansion -- multiple capacity expansion projects. As a company, we now have almost 42 million, 43 million square meters capacity along with an associate company. So we don't -- we do not see any major capacity enhancing investment. We have enough spare capacity to kind of fill up for the next 2, 3 years. So focus is going to be on the market, on market building, distribution, brand awareness.

Sure. And what has been your experience in the southern markets with your Hoskote facility and all? Has that met your expectations as to what you had when you started? How is it tracking now? And I'm just trying to understand, does it make more -- so I'm trying to understand the importance of a pan-India presence versus going stronger in the core markets? Because given that you already have strong competitors in the South, so I'm just trying to understand: one, your own assessment of what happened in Hoskote so far and the southern markets? And then how do you think about the core markets versus the new markets?

So one positive thing is that West, which has been a very weak market for us, actually even weaker than South, has started responding well for us. So I think that's one positive which we have from this financial year. Coming specifically to South that you're asking for, the story is a bit mixed. We have done well in 2 states, but we have not performed well in the other 3 states. So overall, it's been a mixed bag. But we are -- see, in some areas where we have certain residual -- sorry, distribution reach and all, things have started picking up. We had one very big South focused -- South dealer-focused product launch that was in Q1. This product is from our Hoskote plant 4x2. That's been doing very well for us. We are seeing good volumes building up on GVT, which we are supplying from our Baroda plant to South India -- our Dora plant to South India. So that's working well for us. So overall, it's been slow. It's been slower than what we had hoped for, but there is -- there is a decent response we are getting from the market enough to kind of give us the confidence that we need to invest much more aggressively in South India. It's a very big market. And once we get that going, I think it would really put the wind behind -- put wings to OBL top line.

The next question is from the line of Ashvath from Arihant Capital Markets.

My question is specifically on the dealer inventory. So you did mention on -- there was some downsizing happening over the past few years. So currently, what has the trend been? Is the dealer adding up or upsizing its inventory on any end? What is the review from their end in terms of customer demand?

So Ashvath, the dealers, as I said, have been consistently kind of going slow on inventory buildups and all and even reducing the inventories. And I think that story seems to have in my estimate played out. And it is not going to be a very big consideration going forward. So I think we seem to be at an inventory level which the dealers are comfortable with. So I see that as a bit of a good sign for the industry as a whole. Especially for us for the last 9 months or 1 year, Ashvath, we have been very aggressively pushing our team towards demand generation. So our sales team today carries a target for what is the total secondary sale orders that you have generated for the dealers and given to them, and we have a clear digitized process for capturing that on our apps and all. And that number has been steadily building up. And this is also one of the reasons that we are optimistic about the future that we are not kind of pushing stocks into the dealer godown. We are not trying to do primary deals for them to stock more. We are kind of going and talking to a dealer about, "Okay, this is what we are going to help you out with to sell out your stock", and on the basis of that doing a discussion on the primary sales.

Okay. Noted. And on the OBTB, how many more stores do we foresee adding for FY '27 -- till FY '27?

So Ashvath, we have not done the FY '27 AOP planning yet. I think this is something which we are just kick starting. So I can't give you a figure. But as I said earlier, our first and primary priority is to kind of revamp our existing 300-plus OBTB, make them bigger wherever possible, definitely change the branding and the display that we have, the whole planogram or display planogram in this. So that has been a bigger focus. Some new OBTBs will keep on coming up, but that will be priority #2 for us. We have also -- just for information, while we've not talked about it in the past, but especially in the South market, that question had come up. One of the reasons that we have found it a bit slow in South market is that we were not getting display area. It's a very competitive market. The existing display area of dealers are already promised and accounted for by competitors. So last 1 year, we have started a project where we are doing not OBTBs, but putting up displays in these dealers [indiscernible] at a time, 10 lease, 15 lease, just to mark our presence. So that buildup is happening. So while the number of OBTX is very rightly so at 300 plus. No major change at all. But the overall display in the dealer shop has been increasing because a lot of displays -- a decent number of non-OBTB displays have also been put up.

[Operator Instructions] The next question is from the line of [ Ashvanth ] from Samatva.

I just wanted to understand, in the last 4 years, what has been the number of OBTBs which are closed down on a gross basis, number of closures?

So you are basically asking for -- I don't have that number readily, but my sense is we would have closed down maybe 20, 25 OBTBs every year and OBTX. So you don't have that figure separately. I think you can -- we will pass it on to you. Anuj, you can just -- but I'll give you -- don't hold me to it, but I'll give you a sense that we would have closed about 20-odd every year.

Okay. Got it. And for each one that we open, what is the amount of money we put in from our end and not what the franchisees contribute, but what we had to put in from our end, what is that amount?

So we have 3 or 4 different models, and it very much depends on the particular -- the town and the size of the OBTX coming in and all. So we definitely -- the branding is always ours. Getting the OBTB up on all social media handles and all and managing that and digitizing them with visualization tools and everything is all our expense. Some samples -- sometimes we also give some deep discount on samples and all. So very, very -- it depends quite a lot. I don't think our average figure is something which will make sense.

Okay. Okay. No, I'm just trying to understand what has been the cash drain on us because of this -- the context is that. That's what I was just trying to understand. Understood. And secondly, on the digital part that we have because I think there has been at least something which has been -- always been talked about, the differentiation based on the digital approach that the company has had. So right now, what is the advantage that still remains with us versus the peers? And have they caught on? And what has been the impact that you've been able to quantify, "Okay, this has been the impact due to digital, which others could not get?" Or I'm just trying to understand, is it like a real game changer? Or is it good to have?

So see, I think -- that's -- actually, that's a question which is worth a PhD thesis by itself, but let me try to answer this. See, there are 2 or 3 parts of it. One part is pure simple efficiency, efficiency and ease of doing business. So how much it has added to your top line and your bottom line is anybody's guess. But the fact is that when I interview prospective sales employees and I ask them the simple question that what do you know about Orient Bell, and I'm talking about people who are from the tile industry. 9 out of 10 times, I get to hear that when I ask them what do you know about OBL? They tell me that Orient Bell is a tech company. So the speed and the ease at which formation is available to my dealers and my salesmen, salespeople and all, is light years ahead of what is the norm in our industry. So there is an ease of doing business. Anuj has spoken about our very healthy gross margins, which kind of go up to 36% to 38%, 39% and all. I think that's also because we are so highly digitized that wastage is minimal or any wastage kind of gets flagged off and gets collected. So this is one side of the story, which is ease of doing business, which is efficiencies and stuff like that. That's one piece. The other piece where digitization has helped us is at the customer, is helping the customer to make a choice. Now we started our realization tool in 2019, May 2019 was when we launched it. Today, we have -- the tool has continuously improved. Today, there is a voice-enabled tool, and we have 500-odd dealers who are using it. So all of this helps because these are things which a customer is not able to get from any of the competing brands. Today, you walk into my OBTX -- out of these 500 shops, which many of them are not even OBTX. And you can walk out with actually a design of your space: living room, bedroom, kitchen, whatever, on a WhatsApp instantaneously, which is something which is not available, which helps the consumer to make a choice and something not available in any of your competitors. So I think this is catching up. The world is digital. Our consumers are totally digital. Let's not forget that. It's not that the consumer is digital when he buys product A or he is kind of old-fashioned 19th century consumer when he buys product B. So I think this will keep catching on. There is a bit of a laggard on adopting on this, but they're also now slowly and surely catching up. So we see a big differentiator for us from this whole digital approach from the consumer acceptance and brand side also, not just the first part, which is efficiency and ease of doing business.

Got it. Got it. Got it. That is helpful actually. And my final question. So in terms of the closures of the OBTBs, so right now, for this year, what are you projecting? Is it the same -- at the same run rate? Or is it reducing, increasing? How do you see that in terms of OBTBs...

No, because -- see, we have not added so many new OBTBs and all. We have been much more careful and cautious in adding new OBTBs now because longevity of the OBTB is now a prime concern to us. So I think as we get better on this, the need to axe older OBTBs should reduce. But as I said, these are all -- this is something which we are yet to do our planning for FY '27 in detail. And some of these questions will definitely come up for discussion at that time.

The next question is from the line of Karan from Asian Markets Securities.

Sir, just wanted to understand the pricing environment in Morbi. When was the last price hike? And do we anticipate any pricing actions in the near future?

So, Karan, there is a lot of price action, but not in the price increase direction. It's in the other direction. And so I think Morbi pricing has been going down as always. I think that's really the norm. And for us also to share our own manufacturing ASPs have been maintained, but our Morbi ASPs have actually declined. Now don't ask me how much, but they have declined because our purchase price from Morbi has also declined. So that benefit has kind of gone to the dealers.

Right, right. Sir, also wanted to understand, sir, our share of GVT over the last 5 years has increased from 13% to as high as 44% now. But the resultant impact on gross margin has been just 1.5% to 2%. So how do we see the GVT portion now increasing over the next 3 to 5 years and the benefit on the gross margins?

So Karan at 44%, I think we would be at par with the industry leaders or very close to it. So this was clearly over the last -- 5 years back, 6 years back, this was clearly an area where we were not playing. That more or less seems to have been corrected now. Now within GVT, your question was that with increasing margins on GVT, why is it that our margins have not responded that well? So let me answer that. See, within GVT, now our focus is our [ parallel ] GVT. The entry level GVT product is now facing a lot of price competition. So we are moving into the higher end of GVT products, more surface finishes and all. All our new launches are aimed at that particular segment within GVT a higher grossing -- higher ASP product. So that should help. And another reason is that historically, for us, our manufacturing capacities, if you were to see 5, 6 years back, we hardly had any GVT manufacturing capacities in our own manufacturing, not that [ hidden part ]. Now that has increased dramatically over the last 5 years, all coming in through mostly through internal cash accruals and all. But what has also happened is that our ceramics went down and we had a lot of dependent -- own manufacturing was dependent on ceramics. So as ceramic market went down, some of those products have gone out of the market. And so you see a bit of a netting of impact between lower-end ceramics and higher-end GVT. That has resulted in revenues not growing as fast or margins not growing as fast.

Noted. And sir, one last question, if I may. I wanted to understand the slabs market in detail. How many players are there in the market? How is the competitive intensity? And how do we plan to get into the largest slabs, which is slightly better ASP and margin accretive?

So -- see, I think slabs market is -- there are about 28-odd manufactures of slabs in Morbi, I'm talking of. Outside Morbi, there are just, I would say, only 2 companies which have got plants outside of Morbi doing slabs. So there are 28-odd vendors in Morbi doing slabs. A few of them -- I think 3, 4 of them are under shutdown. We expect another 6 or 7 new plants to come in, in calendar year '26 on slabs. So we can safely say that we'll have about 25 to 30 manufacturers of slabs in Morbi, different sizes and all. The margins are not as great as what they were 1, 1.5 years back. If anything, there has been a significant erosion in the slab rates also. But having said that, I think that the slab market will improve. And within slabs, there is now a significant portion which is coming out in [ 15 mm ] segment, which is a very good substitute for granite and basically natural stone. So I think the slab market will definitely pick up.

Right. And our plans to get into this market?

Not as a manufacturer. We are already in the market. We don't have plans to get into it as a manufacturer. The kind of CapEx it takes and the capacity utilization you need to make money, that equation doesn't look very attractive as of now.

[Operator Instructions] Ladies and gentlemen, that was the last question for today. I now hand over the conference to Mr. Aditya Gupta sir for closing comments. Thank you, and over to you, sir.

Thank you. Thanks for your patience. Thanks for being part of this call. And look forward to seeing you in May with our full-year earnings call. Thanks a lot. Bye.

Thank you. On behalf of Orient Bell Limited, that concludes this conference. Thank you for joining us, and you may disconnect your lines.